FCC chairman faces balancing act on net neutrality issue

The Internet's future as a free-flowing network rests in the hands of Federal Communications Commission Chairman Tom Wheeler — and his attempt to craft rules for online traffic became more difficult after President Obama forcefully weighed in on the topic.

Wheeler, a former cable and wireless industry lobbyist, has spent much of the year trying to thread the needle in proposing new regulations strong enough to satisfy proponents of network neutrality yet tolerable to broadband providers and their Republican allies in Congress.

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He also must come up with an approach that would avoid the fate of the FCC's last two attempts to craft net neutrality rules: They were thrown out by federal judges.

The Democrat, whom Obama appointed last year to head the agency, probably would cast the deciding vote on a final set of rules. The FCC's two other Democrats support tough regulations; the two Republicans oppose them.

"The chairman has tried to be the voice of reason," said Tuna Amobi, a media and entertainment equity analyst at S&P Capital IQ. "But it's hard to get a hybrid approach that's going to satisfy both sides."

Obama's call Monday for aggressively regulating Internet service providers has complicated Wheeler's task. He had hoped to unveil final rules this year, but that's not likely to happen now until next year. "There is more work to do," he said.

Wheeler's final proposal and the agency's decision on it will mark a pivotal moment in the Internet's history.

The Internet has enjoyed mostly hands-off treatment by regulators. But as it becomes more deeply involved in the economy and people's lives, concern is growing that the large telecommunication companies delivering the data will exert too much control over content and customers' ability to access legitimate websites.

That concern is exacerbated by increasing industry consolidation that has left most homes with a choice of only two broadband providers.

Noting limitations on copper-line telephone systems, the FCC said that 82% of U.S. households with access to the highest Internet speeds — 50 megabits a second or more — depend on one provider, usually the cable TV company.

The concept of net neutrality holds that all legal Internet traffic should be treated the same by broadband providers. Those network owners would not be able to offer faster delivery of their own movies, TV shows and websites over those of competitors. Nor would they be allowed to sell faster speeds at higher prices to other content providers.

In January a federal court, in a challenge from Verizon Communications Inc., threw out FCC rules prohibiting Internet service providers from blocking consumers' access to websites and discriminating against content.

The court said the FCC wanted to treat broadband providers like more highly regulated phone companies but had specifically exempted Internet service firms from such treatment in 2002.

Last spring, Wheeler proposed rules that could allow preferential treatment of some content. He also asked the public for input on whether the FCC should remove that exemption and treat broadband providers like phone companies.

The agency was inundated with nearly 4 million comments, many of them urging tougher rules. On Monday, Obama called for the FCC to reclassify broadband providers so they are regulated like phone companies and other utilities.

"For almost a century, our law has recognized that companies who connect you to the world have special obligations not to exploit the monopoly they enjoy over access in and out of your home or business," Obama said.

"It is common sense that the same philosophy should guide any service that is based on the transmission of information — whether a phone call, or a packet of data," he said.

Wheeler is mulling over his options.

On Monday, he reiterated his commitment to keeping the Internet "an open platform for free expression, innovation and growth." He said he shared Obama's opposition to "Internet fast lanes." And Wheeler said broadband providers should not be allowed to "cut special deals to prioritize Internet traffic."

What he wants, though, remains unclear. Over the last few months, he has provided some hints.

In August, Wheeler appointed Scott Jordan as the FCC's chief technology officer, a position that does not make policy but strongly influences how it is written. Jordan, on leave from his job as a computer science professor at UC Irvine, supports a moderate form of net neutrality.

In a September speech at 1776, a tech start-up incubator in Washington, Wheeler highlighted the importance of broadband competition while also noting that the FCC's rule-making proceeding "is about ensuring that the Internet remains free from barriers erected by last-mile providers."

Those providers are companies such as Verizon, Comcast Corp. and Time-Warner Cable Inc. that hook homes and businesses into their networks.

In recent weeks, the FCC floated the concept of a hybrid approach that would treat business-to-business Internet arrangements with utility-like regulations and would allow a lighter touch on consumer deals with their broadband providers.

The agency would then be able to prohibit a deal that provides a faster, priority Internet connection — for a higher price — to let, say, Netflix Inc. stream movies more reliably. But the FCC would stay out of prices that network owners charge consumers.

Wheeler "has been pretty clear he wants some kind of regulation that isn't a rigid framework," said Amobi, the industry analyst.

Although the FCC is an independent agency, Obama's desire for a tougher regulatory approach will have some influence, said Robert McDowell, a former Republican FCC commissioner who opposes a utility-like approach.

Although Obama can't remove Wheeler from the FCC, the president has the authority to designate another commissioner to serve as chairman.

"My guess is [Wheeler] will follow the president's clarion call to have full utility regulation for the entire Internet," said McDowell, now a partner at the Washington law firm Wiley Rein.